The economy could suffer another blow following suspension of the Bt1.8-trillion mega-project investment that was believed would be a huge contribution to domestic demand.

Despite earlier insistences that the government would proceed with the investment as planned, the Cabinet announced the suspension yesterday, which will lead to the postponement of the May 29 deadline for mass-transit development proposals. The deadline was previously delayed from April 28.

It is now feared the suspension will bring down economic growth this year, amid concerns that the strong baht against the US dollar and high oil prices will also severely curtail growth. Earlier this year, the National Economic and Social Development Board announced it expected GDP to expand 4.5-5.5 per cent. Spending on infrastructure was expected to be a major boost to the Thai economy.

"Without these mega-projects, economic growth could be cut 0.25-0.5 per cent," Adkinson Securities vice president Ronnakit Sarinwong told Agence France-Presse.

"The proposals are now expected to reach the government next year, with concessions awarded to investors in the second half. But we don't foresee any project development will be taking place in 2007," he said.

The highlight of the new public-works projects is the addition of 10 new light-rail lines in Bangkok, with a total length of 329.5 kilometres, aimed at easing the

city's notorious traffic congestion.

Finance Ministry officials will convene next month to consider whether the economic growth rate should be revised.

The disappearance of the investment is expected to hurt Thailand's economic growth, coming on top of high oil prices and a strong baht. Right now, exports are the main engine for boosting growth, but some exporters have witnessed slower sales, as the strong baht cuts potential gains from their dollar-denominated income.

Phatra Securities said in its latest research that Thailand could experience a growth shortfall this year, particularly if the global economy slowed unexpectedly.

"Exports are Thailand's primary growth engine for 2006. A slowdown in exports during the second half and Thai interest rates peaking by mid-year could help the baht weaken to Bt38 to Bt39 by the end of the year," it said.

In postponing investment, the Cabinet said all investment decisions would be determined after the new government was formed. "Consideration of the mega-projects will be suspended indefinitely. Still, each ministry must prepare details of each project under its supervision.

The details will then be presented to the new government as soon as it is formed," caretaker Transport Minister Pongsak Ruktapongpisal said after the Cabinet meeting.

The Thaksin II administration had planned to invest Bt290 billion in infrastructure this year, in the first phase of its massive infrastructure project. But months of political turmoil, with street protests that forced Thaksin to step aside on April 4, have put in doubt the government's ability to begin the projects this year.

Earlier, several securities houses had anticipated political turmoil delaying investment a year or two. They said that while the outgoing government should not approve the huge projects, it would take time for the new government to be formed.

The delay comes amid lingering political uncertainties after the April 2 general election, which Thaksin's party won but which was undermined by an opposition boycott. By-elections in 40 districts are set for next Sunday to try to fill seats left empty by the boycott.

The new government cannot be formed without the consent of Parliament. However, Parliament is not supposed to convene until all seats are filled.